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The raw materials madness continues. Silver is the most expensive in 11 years

The raw materials madness continues. Silver is the most expensive in 11 years

created Daniel Kostecki20 May 2024

We may be seeing another step within business cycles as the market shifts the investment burden towards raw materials. Within the cyclical clock, the next quarter after the equity quarter is the raw materials one. Looking at what has happened so far on the stock market, where subsequent historical records have been broken, it is currently difficult to ignore what is happening on the raw materials market. There are also new records here gold prices or copper.

China is buying metals like there is no tomorrow

It seems that the vast majority of recent price changes are driven by investors from China, who have long been one of the largest buyers of metals. The fashion for investing, for example, in gold in China began last year, when the Chinese who could not invest in cryptocurrencies, began to buy gold en masse also in an attempt to defend part of the value of their belongings after the real estate market crash. Investors from China are also significantly increasing silver prices on the Shanghai metal exchange in relation to prices elsewhere in the world.

Demand from central banks, including the Chinese one, also remains important PBOC. According to WGC, in the first quarter of 2024, global demand for gold increased by 3% year-on-year, reaching 1 tons, which means the strongest first quarter since 238.

China, India and Singapore were among the Asian markets that increased their gold purchases in the first quarter, with increases of 27,06, 18,51 and 6,57 tonnes respectively. This applies to both central banks and retail transactions.

Copper and supply problems amid strong demand

The situation is no different with copper prices, which have skyrocketed to record levels due to the unprofitability of many smelters in China. Back in March, information appeared that over 10% of production would be shut down because it was not profitable. The supply side has decreased, and demand, in turn, has realized that, in addition to photovoltaic panels or electric cars, AI infrastructure may also have a huge demand for copper. The price of copper thus broke a historical record, rising following forecasts of shortages of the raw material.

It should also be added that, unlike the USA, the money supply in China is systematically growing, China is probably at the beginning of the recovery phase and China is emerging from deflation. It is the second economic pole in relation to the United States.

Silver Squeeze for the third time?

The price of silver is also catching the attention of investors as it is at an 11-year high, breaking above $30 an ounce. This immediately brings to mind two previous significant upward movements in silver. The first spike in silver prices of approximately 1000% (one thousand percent) occurred in 1977-1980. The second spurt took place after the great financial crisis and then the scale of growth was almost 500%. Currently, even after Covid, the scale of the silver price increase is approximately 180%. Hence, for some investors, this movement does not seem to be exhausted yet and for the third time in history they may be looking at the area of ​​USD 50 per ounce, where silver prices have reached in the past.

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About the Author
Daniel Kostecki
Chief Analyst of CMC Markets Polska. Privately on the capital market since 2007, and on the Forex market since 2010.